Because credit card issuers need contracts to be enforceable, card agreements consumers sign are often dense and difficult to fully understand. Terms regarding interest can be especially difficult to parse since interest is typically expressed as an annual percentage rate (APR) and requires use of polynomial algebra to properly calculate. To avoid triggering traumatic memories from math class, use our credit card interest calculator to help you understand how much interest a carried balance will accrue or how much you might owe if you don’t pay your credit card bills in a timely manner.
How Do I Calculate Credit Card Interest?
Calculating your credit card interest using the average daily balance method requires dividing your annual percentage rate by 365 to determine the daily interest rate. Every day you carry a balance, this daily rate applies to the balance from the day before. The higher the APR, the larger the amount of interest accumulated daily.
Unless you’re calculating interest on a balance transfer or cash advance, the APR used is typically your card’s standard APR and can be found within the Schumer box section of your cardholder agreement.
How Does Credit Card Interest Work?
Credit card interest typically accrues when you carry a balance on a card. Paying less than the entire balance before a statement due date means you’ll carry any remaining balance. Interest will accrue on a carried balance. If you pay off your balance in full by the end of the month or billing period, you will not accrue interest on purchases.
Interest is represented by an annual percentage rate or APR. APRs may be fixed or variable depending on whether or not they’re tied to the prime rate, so the actual rate may change. An APR is annual but interest compounds daily, so to find the actual rate applied to your balance on a daily basis, divide the APR by 365 days. This daily rate is applied to your balance every day the balance remains unpaid, which means your balance will grow exponentially, as every day’s balance will be higher than the day before.
Usually, card issuers provide a grace period to help you avoid accruing interest. So long as you pay your bill in full before the end of the billing cycle, you won’t accrue interest on your balance. Though grace periods do not apply to cash advances, you can lose a grace period if you carry a balance. Cards typically requires on-time, in-full payments to recover the grace period and be able to avoid interest again.
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What Is the Average Credit Card Interest Rate?
In May of 2022, the Federal Reserve reported an average interest rate of 16.65%. The average credit card interest rate in 2021 was 16.45%. Credit card rates shift for individual consumers based on a number of factors, including creditworthiness. Typically, the lower your credit rating, the higher the interest rate you’ll be offered by an issuer for the same card.
